There is mounting evidence of a downturn in the computer games industry as the impact of pressures on consumer budgets and the wider choice of leisure activities coming out of the pandemic is being felt.

The performance of relevant UK-listed firms is reflecting this reversal in fortunes, something the sector has in common with other ‘lockdown’ winners. The average decline from 12-month highs is around 43% with declines across the broad spectrum of players.

What everyone wanted to know two years ago was whether the strong increase in computer gaming was a one-off related to Covid restrictions or a sustainable acceleration in the long-term growth trend.

Gaming research and data company Newzoo estimates spending on video gaming fell by around 4% in 2022 to $184 billion.

The report highlights changes to privacy rules for mobile users and fewer large game releases contributed most to the overall decline. The mobile market (around half the market) is forecast to have shrunk by 6%, the console market by 4% while the PC gaming market saw a small 0.5% increase.

The weakness in mobile was signaled by Take Two Interactive Software (TTWO:NASDAQ) at its second quarter results and led the firm to downgrade full-year expectations.

Nevertheless, analysts at Numis point out that industry revenues generated between 2020 to 2022 are around $43 billion higher than original forecasts, suggesting a sustained benefit.

While sector experts acknowledge spending is discretionary, they also make the case that gaming is a relatively ‘cheap’ treat, suggesting the impact from consumer weakness is not a big concern.

A profit warning (9 January) from games developer Frontier Developments (FDEV:AIM) seems to contradict this assertion. The company noted ‘increased player price sensitivity related to worsening economic conditions’ as a key factor in a disappointing Christmas trading period.

Its peer Devolver Digital (DEVO:AIM) also lowered its profit outlook the same day on weaker than expected trading in December suggesting consumer weakness might be more challenging than anticipated for the sector.

That said, it is difficult to separate general economic conditions from company-specific factors. Fellow developer Team17 (TM17:AIM) rushed out its own statement saying trading for the year to 31 December was ‘at least’ in line with market expectations.

Numis said it expects acquisitions to remain a key feature of the video gaming landscape.

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